We all knew it was coming, but Woodside Petroleum Limited (ASX: WPL) today revealed just how much the weakness in oil prices has impacted its business over the past six months.
A falling Aussie dollar provided little respite, and Woodside cut its dividend in half to boot. Here's what you need to know about today's release:
Good, bad, or ugly?
- Revenues from ordinary activities fell 28% to US$2.56b
- Statutory Net Profit After Tax fell 38.6% to US$679m
- Underlying Net Profit After Tax fell 40.2% to US$679m
- Production fell 9.7% to 42 million barrels of oil equivalent (Mmboe) thanks to a planned turnaround at Pluto, unplanned shutdown at North-West Shelf, oil field decline and cyclone impacts
- Interim dividend down 40.5% to 66 cents per share, reflecting a payout of 80% of net profit
- Gearing of 19.9% (target of 25%), up from 3.9% in first half of 2014 due to acquisitions and lower cash flows
- Total debt of $3.9bn, up from $3.2bn
- Maintained full-year production target of 86-94Mmboe
- Remained operating cash-flow positive (i.e., making a profit on its sales) but free cash flow-negative
Mostly ugly, but with a heart of gold
It's not a pretty report and I'm expecting Woodside shares will take a bit of a nosedive in trading today as investors realise just how much its profits have been hit. However, the core business remains intact with Woodside owning world-class assets and taking advantage of its financial position and strong production to acquire more of them.
Recent acquisitions look to be a smart decision for a company with a long-term timeframe given recent falls in asset values worldwide, and management appears to be open to future acquisitions given their indication that current gearing of 19.9% remains below the announced target level of 25%.
Should I buy it?
I continue to believe that Woodside is one of the best Australian opportunities for investors looking to add medium to long-term exposure to oil and gas to their portfolio.
However, much of the upside depends on where oil and gas prices go from here and it is worth pointing out that the historical long-term average oil price is far below the US$100/barrel investors have grown to expect in recent years.
On the other hand, the world's major oil producers are seeing billions of dollars in missed revenues go up in smoke compared to when prices were higher. Given that many of the world's biggest producers are government-owned businesses, this applies a lot of pressure to promote higher prices.
Having a view on the future price of oil and gas will prove important to an investment thesis, but equally important is having a shrewd capital allocation strategy, a long-term focus and a sound balance sheet. Woodside looks like a winner on all these counts.
